Watch the origin of money playing out in real-time in Cyprus

Credit-backed money could be passed around the nation after the implementation of capital controls.

The origins of money are frequently fought over. Classical economics textbooks frequently cite the idea of a barter economy switching to money for the efficiency gains. Adam Smith, in 1776, was well aware of the problems with barter economies, writing that:

One man, we shall suppose, has more of a certain commodity than he himself has occasion for, while another has less. The former consequently would be glad to dispose of, and the latter to purchase, a part of this superfluity. But if this latter should chance to have nothing that the former stands in need of, no exchange can be made between them.

The problem is, that didn't happen. David Graeber's book Debt: The First 5000 Years contains a pretty thorough demolition of the idea, noting that no anthropologist ever has found a pre-monetary society which operates a barter economy in that fashion. A few societies which have lost money for other reasons have reverted to barter, but that's a whole different thing.

Instead, Graeber writes, money arose from debt. Its first role is as a unit of account, a way of tabulating that the person who you lent a cow owes you something; then, as the amount of outstanding debt in society grows, those IOUs become tradable, and eventually standardised. You can even see that on British bank notes – they are, strictly speaking, promissory notes, representing not a sum of money, but a sum of debt. "I promise to pay the bearer, on demand…" reads the text on the front.

And now, as David Keohane excerpts over at FT Alphaville, we could be seeing that route to money creation re-occurring in Cyprus. Citi's William Buiter writes that the capital controls imposed on the country:

Will, if they persist for more than a few weeks, likely lead to a search for alternative media of exchange for internal transactions. IOUs of large, respected enterprises could for example be countersigned and start to circulate more widely as media of exchange and means of payment. This was the case, for instance, during the 1970 bank strike in Ireland, uncleared cheques were made negotiable (like bills of exchange) and pubs and shops served as credit verifiers. These could later develop into more full-fledged parallel currencies, if internal euro liquidity in Cyprus remains very scarce.

It's also another example of how private money creation – à la Bitcoin and so many other initiatives – isn't that new or trendy at all. But the problem for groups of citizens making their own private money is that eventually they have to contend with a government.

That's not, as some of the more alarmist bitcoiners and goldbugs would have it, because the Government comes in and seizes your money if you start to rival its power. (That said, most countries do have laws on the books preventing you from minting your own coinage.) It's the more prosaic matter of taxes.

Governments have the power to demand payment of taxes in whatever currency they want – and usually, the currency they control. So while private money might grow relatively sizeable in Cyprus, no matter how organised it gets, people will always need to hold onto euros – and Bitcoin is going to struggle to get a foothold as a "real" currency if you need to convert back to pounds every April to pay HMRC.

Still, one of the few fun things about living in these interesting times is that those of us who know basic economics get to watch our textbooks played out in front of us. Northern Rock was a bank run with real queues outside the front of the building; Bitcoin lets us have a more up-to-date example of a speculator's bubble than tulip madness; and now we're seeing the origin of money in real-time.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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I'm far from convinced by Cameron's plans for Syria

The Prime Minister has a plan for when the bombs drop. But what about after?

In the House of Commons today, the Prime Minister set out a powerful case for Britain to join air strikes against Isil in Syria.  Isil, he argued, poses a direct threat to Britain and its people, and Britain should not be in the business of “outsourcing our security to our allies”. And while he conceded that further airstrikes alone would not be sufficient to beat Isil, he made the case for an “Isil first” strategy – attacking Isil now, while continuing to do what we can diplomatically to help secure a lasting settlement for Syria in which Assad (eventually) plays no part.

I agreed with much of David Cameron’s analysis. And no-one should doubt either the murderous barbarism of Isil in the region, or the barbarism they foment and inspire in others across the world.  But at the end of his lengthy Q&A session with MPs, I remained unconvinced that UK involvement in airstrikes in Syria was the right option. Because the case for action has to be a case for action that has a chance of succeeding.  And David Cameron’s case contained neither a plan for winning the war, nor a plan for winning the peace.

The Prime Minister, along with military experts and analysts across the world, concedes that air strikes alone will not defeat Isil, and that (as in Iraq) ground forces are essential if we want to rid Syria of Isil. But what is the plan to assemble these ground forces so necessary for a successful mission?  David Cameron’s answer today was more a hope than a plan. He referred to “70,000 Syrian opposition fighters - principally the Free Syrian Army (FSA) – with whom we can co-ordinate attacks on Isil”.

But it is an illusion to think that these fighters can provide the ground forces needed to complement aerial bombardment of Isil.  Many commentators have begun to doubt whether the FSA continues to exist as a coherent operational entity over the past few months. Coralling the myriad rebel groups into a disciplined force capable of fighting and occupying Isil territory is a heroic ambition, not a plan. And previous efforts to mobilize the rebels against Isil have been utter failures. Last month the Americans abandoned a $500m programme to train and turn 5,400 rebel fighters into a disciplined force to fight Isil. They succeeded in training just 60 fighters. And there have been incidents of American-trained fighters giving some of their US-provided equipment to the Nusra Front, an affiliate of Al Qaeda.

Why has it proven so hard to co-opt rebel forces in the fight against Isil? Because most of the various rebel groups are fighting a war against Assad, not against Isil.  Syria’s civil war is gruesome and complex, but it is fundamentally a Civil War between Assad’s forces and a variety of opponents of Assad’s regime. It would be a mistake for Britain to base a case for military action against Isil on the hope that thousands of disparate rebel forces can be persuaded to change their enemy – especially when the evidence so far is that they won’t.

This is a plan for military action that, at present, looks highly unlikely to succeed.  But what of the plan for peace? David Cameron today argued for the separation of the immediate task at hand - to strike against Isil in Syria – from the longer-term ambition of achieving a settlement in Syria and removing Assad.  But for Isil to be beaten, the two cannot be separated. Because it is only by making progress in developing a credible and internationally-backed plan for a post-Assad Syria that we will persuade Syrian Sunnis that fighting Isil will not end up helping Assad win the Civil War.  If we want not only to rely on rebel Sunnis to provide ground troops against Isil, but also provide stable governance in Isil-occupied areas when the bombing stops, progress on a settlement to Syria’s Civil War is more not less urgent.  Without it, the reluctance of Syrian Sunnis to think that our fight is their fight will undermine the chances of military efforts to beat Isil and bring basic order to the regions they control. 

This points us towards doubling down on the progress that has already been made in Vienna: working with the USA, France, Syria’s neighbours and the Gulf states, as well as Russia and Iran. We need not just a combined approach to ending the conflict, but the prospect of a post-war Syria that offers a place for those whose cooperation we seek to defeat Isil. No doubt this will strike some as insufficient in the face of the horrors perpetrated by Isil. But I fear that if we want not just to take action against Isil but to defeat them and prevent their return, it offers a better chance of succeeding than David Cameron’s proposal today. 

Stewart Wood is a former Shadow Cabinet minister and adviser to Ed Miliband. He tweets as @StewartWood.